As Modi-Xi meet, can India and China reset trade ties

But unpredictable American trade policies and two ongoing wars that have rattled the oil and bond markets seem to have nudged India and China to ease tensions.

As negotiations between India and the US for a deal remain on, India has been seeking an edge in Section 301 rates over its competitors, including China. The demand for differential tariffs may have begun taking shape as the US in July this year imposed a 10% forced labour tariff on India, which was better than the 12.5% tariffs imposed on China, Russia and Brazil among others. China had earlier warned countries of consequences if they struck deals at its expense.

Chinese President Xi Jinping arrives for the BRICS summit in New Delhi on Saturday. (AP)

Talks amid heightened uncertainty

As hope for a reset in ties builds, international trade experts said that the timing of the bilateral is significant due to the rise of aggressive industrial policies globally that have exerted pressure on Global South nations, making cooperation between Asia’s two largest economies strategically necessary.

“India and China have a stake in the resilience of Global South nations in these times, and both support multilateralism. The recent positivity created in both security and economic engagement with China offers an opportunity for the leaders of the two great nations meeting bilaterally on the margins of the BRICS Summit to chisel out a durable pathway informed by trust,  mutual interest, and leadership of the Global South,” said Atul Kaushik, a Fellow at the Global Development Centre of the thinktank RIS.

India-BRICS trade

Arpita Mukherjee, Professor at Indian Council for Research on International Economic Relations, said that India may raise market access issues that some exporters are facing in China during the talks, and that both sides may look at enhancing cross-border investment. 

“Start-up and SME collaborations can be an area of discussion. How to handle the US and how to work together in WTO in areas like WTO reforms can also be discussed. Current geopolitics and energy security are likely to be discussed. Strengthening the New Development Bank can be another area where both sides have to reach a consensus for cross-border infrastructure projects,” Mukherjee said.

China dominance & MSMEs demands

With current trade within BRICS heavily centred around China, MSMEs have a deep dependency on Chinese capital goods and technical expertise. However, manufacturers said that there is significant opportunity in the BRICS for exports. While Indian MSMEs are seeking better technical cooperation with China and easier access to input items from the country, there is a simultaneous challenge of a trade deficit with the neighbouring country.

As per the Institute for Studies in Industrial Development (ISID), India faces its largest and growing trade deficit with China, particularly in consumer goods (garments, leather), electronics, auto components, and power equipment (solar PV cells and batteries). China is India’s single largest import origin, supplying 19.2% of India’s total imports, ISID reports said.

S C Ralhan, president of the Federation of Indian Export Organisations (FIEO), said BRICS cooperation can improve India’s access to critical minerals, energy, technology, capital and new manufacturing partnerships. “The opportunity is not simply to sell more to BRICS countries. India should become an integral part of the production, sourcing and value chains being developed across these economies,” he said.

“We need BRICS to create practical trade, payment and investment corridors through faster cross-border settlements, affordable trade finance, easier recognition of standards, verified buyer-seller networks and stronger SME-to-SME partnerships. With India running a substantial trade deficit with most BRICS economies, the priority must also be to integrate Indian MSMEs more deeply into BRICS supply chains,” said Vinod Kumar, President, India SME Forum.

Challenges from China’s dominance

While Indian manufacturers are increasingly scouting for opportunity, the biggest challenge is competing with Chinese goods abroad and China’s overreliance on exports rather than consumption for economic growth. A Stanford research report released last year said that the next “China” in labour-intensive manufacturing is still China. 

“No other country has fully absorbed China’s former role in labour-intensive exports, and China itself remains resistant to large-scale immigration of low-skilled workers. As a result, the transition away from China’s dominance in these industries is unfolding gradually, with no clear replacement emerging yet,” the report said.

A US Treasury report last year also said that  China’s economy, built on an unsustainable model of a growing trade surplus, is not only harming itself but also the “entire world. The report said that China now accounts for over 60 per cent of global goods trade surpluses, while the share of domestic consumption, including both household and government spending, fell to less than half its pre-pandemic average in the second half of 2024.

“China’s net exports’ contribution to growth for the most recent three quarters was among the highest on record, while domestic consumption’s share, which includes both household and government consumption, fell to less than half of its pre-pandemic average in the second half of 2024,” the US Treasury report said